The Supremes Open Small Window to Arbitration Appeals
The very purpose of contractual arbitration is to avoid the courts. Therefore, the courts have long held that there is no right of appeal from an arbitrator's award; any decision is final and binding. The only exceptions are where the arbitrator clearly exceeds his authority or had a conflict of interest. In the recent decision of Cable Connections, Inc. v. DirecTV, Inc., the California Supreme Court applied a contract interpretation that recognizes one more basis for appeal from an arbitrator's award. The courts have refused to honor appeal rights in arbitration agreements that call for the right of appeal on the merits of the case.
In Cable Connections, the agreement between the parties provided for binding arbitration, but contained the unusual language that "the arbitrators shall not have the power to commit errors of law or legal reasoning, and the award my be vacated or corrected on appeal to a court of competent jurisdiction for any such error." Thus, the agreement does not permit a review on the merits, but does allow for an appeal to question the arbitrator's interpretation of the law.
The Supreme Court had no problem with that approach, and even went so far as to state that the language of the arbitration agreement would not need to be as clear as the one before it to confer such a right of appeal on the law.
You may be asking yourself, why would anyone want to proceed in this manner? After all, if the point of arbitration is to avoid court, why build in a right of appeal? The answer is that binding arbitration without the right of appeal can be very scary, and some want to plot a middle course.
In one case my client agreed to submit a case we were pursing in court to non-binding arbitration. We went before the arbitrator, and after the matter was concluded and the parties were leaving, the arbitrator asked the defendant if my client had ever made certain disclosures. The defendant lied and denied that she had received such disclosures. I objected to this impromptu questioning and asked the arbitrator to resume the arbitration so that my client could testify on the point he had raised. The arbitrator responded that would not be necessary, because defendant had never raised the disclosure issue, and therefore his decision would have nothing to do with what defendant had just said.
A few weeks later we received the arbitrator's decision, wherein he found for defendant based entirely on the alleged lack of disclosure. Since this was non-binding, I simply rejected the award and proceeded to trial, where we handily prevailed. This case showed me, however, how arbitrary an arbitrator's award can be, and why binding arbitration can be risky.
Large companies have also learned this lesson, and reason that if they throw in an opening for appeal, it is more likely to inure to the company's benefit than the other side's. Even if it means the occasional appeal, at least the issues will be limited to the law. A major motivation for large companies in selecting arbitration is to keep cases away emotional juries, and that is accomplished even with an appeal provision.
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